EP Wealth’s Michael McGrath CFP®, CLU®, CAP®, shares insights on Charitable Remainder Trusts and how they are designed to help balance family financial needs with long-term philanthropic goals.
In my experience as a CFP®, a common tension people face in estate planning is balancing support for their family with their desire to give to charity. While it can sometimes feel like you have to choose between the two, a Charitable Remainder Trust (CRT) offers a way to bring both goals together. Instead of thinking of giving as an either-or decision, a CRT allows you to provide for loved ones while also supporting a cause that matters to you.
Before making any decisions, it’s important to look at how a CRT fits into the bigger financial picture. A CRT is irrevocable, meaning once it’s established, you can’t take it back. That’s why it should be considered in the context of a fully developed financial plan—one that accounts for liquidity needs, other trusts, and overall estate goals.
At its core, a CRT splits an asset into two components:
This structure allows you to give to charity without giving up the opportunity to provide income for yourself or your family. The payments can last for a lifetime or a set number of years, depending on how the trust is structured.
Funding a CRT isn’t just about setting money aside for charity. The type of asset you contribute matters, both for your financial situation and for the charity receiving the remainder.
A common approach is to use appreciated assets—such as stock, real estate, or a business interest—because a CRT may offer ways to defer or reduce capital gains exposure. For example, if you’ve owned stock for decades and it has significantly increased in value, donating it to a CRT could allow you to fund the trust without immediately selling and triggering capital gains taxes.
That said, not every asset is a good fit. The charity needs to be able to handle what you’re giving. If a small nonprofit suddenly receives raw land in the middle of nowhere, they might not have the resources to manage it. So, when selecting assets, it helps to think about both your tax situation and what will actually be useful to the organization.
Once a CRT is set up, the remainder of the trust goes to a designated charity—but that doesn’t always mean it will be used in the way you envisioned. Before making a gift, it’s important to have a conversation with the organization to clarify expectations.
For example, you could have a situation where a donor intends their funds to go toward feeding hungry children, but the nonprofit uses the money to buy computers instead. That might be a legitimate operational need for them, but it wasn’t what the donor had in mind. These types of misunderstandings can often be avoided with open discussions and planning. Many organizations are willing to work with donors to establish guidelines that align with their mission while also respecting the donor’s wishes.
There’s no going back once you make a commitment to a CRT. That’s why it is crucial to first consider how a CRT fits within your broader financial plan. Do you have other financial priorities that need to be addressed? Have you accounted for liquidity needs outside of the trust? I recommend creating a prioritized list of financial goals - including family support and personal financial well-being – to see how charitable giving can be balanced within the overall picture.
That said, when these different financial needs are balanced properly, charitable giving can be incredibly fulfilling. In my experience, when clients feel confident about their planning, it truly becomes an act of joy to create a lasting legacy of helping others.
A CRT doesn’t just impact charitable giving—it also has tax and estate planning implications. The income generated by a CRT is taxed differently from other types of income, which means it’s important to look at how distributions will affect both the donor and any income beneficiaries.
When working with clients, we take a close look at tax brackets, estate taxes, and charitable deductions to determine how best to structure the trust. The goal is to make sure the estate plan, tax plan, and charitable intentions all work together. That might mean selecting specific assets for donation or adjusting the timing of distributions. The right approach depends on the individual situation, which is why careful planning is key.
Some people already have a charity or cause they’re deeply connected to, but others come to me knowing they want to give but aren’t sure where to start. Their ideas around philanthropy are broad, and they need help narrowing their focus.
When that’s the case, the first step is asking the right questions: What kind of impact do you want to have? Is there a personal experience that shaped your desire to give? What values do you want to reflect in your legacy?
I once worked with a family whose mother had passed away from Alzheimer’s. They knew they wanted to support Alzheimer’s-related causes, but it took time to refine their focus. Did they want to fund research to find a cure? Provide resources for caregivers? Support patient programs? It wasn’t a quick decision—it took months of discussion and research—but once they had clarity, they were able to make a gift that truly reflected their values.
When you understand the why behind your giving, the how becomes much easier to figure out.
Once you’ve identified a cause you want to support, the next step is getting to know the organizations working in that space. I encourage clients to spend time engaging with a charity before making a significant financial commitment.
That could mean:
A hands-on approach can help donors feel more confident in their decisions. It may also help build authentic connections with the organizations they support, which can lead to more meaningful and impactful giving.
Bringing family into the conversation about charitable giving can help create a sense of shared purpose. Some families establish family councils or set up regular meetings to discuss philanthropic goals. This can be a way to educate younger generations on financial stewardship while also making sure that giving decisions reflect shared values.
Of course, family dynamics can be complex. It’s not uncommon for different family members to have competing priorities or differing views on charitable causes. In some cases, discussing charitable giving together can strengthen relationships. In others, it can highlight disagreements that need to be addressed.
Open communication—sometimes with a financial advisor serving as mediator—can help navigate these conversations constructively.
A Charitable Remainder Trust can be a valuable tool, but it’s not something to approach in isolation. Consider working with a team of professionals, which might include:
Contact an EP Wealth advisor to learn more about incorporating charitable giving into your financial plan.
DISCLOSURES: